0700 UK Interest Rate Decision - (unanimous to hold at 0.5%)
Affliated Reports:
UK Asset Purchase Facility (unanimous to hold at 200B)
All 55 of the analysts polled by Bloomberg predict that the BOE will
again hold off changing rates, and all 35 of the analyst polled think
the BOE will keep the Asset Purchase Target (QE) steady at £200B.
While the economy grew 0.5 percent in the first quarter, investment
and consumer spending slumped the most in almost two years.
Manufacturing expanded at the slowest pace in 20 months in May and
services grew the least since February. Predictions for the next
rate hike have been pushed out further into the future, from August
to November and some till early 2012. With the arch-hawk Sentance
been replaced by ex-Goldie Broadbent, the hawkish side of the MPC
has weakened with just Dale and Weale remaining. Although they are
not confident in the recovery of growth to them inflation has become
more of a threat, which is still more than twice the 2% target.
Fischer has voted to raise the APF, which if they did would be
bearish for the quid. Other members would not consider this unless
the economy took another dip. Very unlikely there will be any change
to anything today, and there is no statement unless there is a change,
unless in extreme circumstances such as the 2008 crash.
If they hike, GBPUSD will go up over 100 pips
If the cut, GBPUSD will go down over 100 pips
if they raise APF by 25B, GBPUSD should drop 50-70 pips
if the cut APF by 25B, GBPUSD should go up 50-70 pips
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0745 ECB Interest Rate Decision - (unanimous to hold at 1.25%)
0830 ECB Press Conference - ('Strong Vigilance' expected = July Hike)
All 52 analysts polled by Bloomberg expect the ECB to hold for now.
The ECB usually signals there intentions in the Press Conference with
a series of code-words. Last week the Troika indicated that Greece
will receive more funding, this has reassured the market that the ECB
can move ahead with their planned hikes. Despite this not being helpful
for the periferal economies, the size of these are much smaller than
Germany and other 'Central' Eurozone countries, and these economies are
what the ECB is usually setting rates for. However the market expectations
for a July hike are not a done deal, and the 'Strong Vigilance' on inflation
code word expected in Trichet speech today is not certain. There are
have been some recent economic indicators suggesting that the ECB might
hold off. Inflation has eased slightly, German unemployment has not
continued to reduce, German industrial production dropped, Trade Balance
is lower. Data released in the Eurozone was also rather disappointing.
The final estimate of PMI was revised lower to 51.6 from preliminary
reading of 54.8. In April, the reading was 58. Economic sentiment indicator
[fell for a third consecutive month, to 105.5, in May. While consumer
confidence improved, manufacturing and retail confidence deteriorated
during the month.
Trichet used the words 'very closely monitoring' in May's statement,
which was interpreted as meaning a July hike. 'Strong vigilance' today
will make the market think a hike is set for July and the euro will rally.
If this word is not said the market could be let down, however if he says
'very closely monitoring' this should reassure the market that hikes are
coming, and this would mute any sell off. The words that current policy
is "very accommodative" suggest a longer pause and eurusd will sell off.
0745 Rate
If they hike, EURUSD will go up 60-90 pips
If they hold, EURUSD will go down over 60-90 pips
0830 Statement
if "Strong vigilance" EURUSD will rally 50-100 pips
if 'monitor all upside inflation risks "very closely"' perhaps brief drop but should bounce back
if 'Current policy is "very accommodative"' EURUSD will sell off 50-100 pips]
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